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b) Assume that the taxi industry operates in an unregulated market and is characterized by monopolistic competition. Assume also that taxis and Uber are substitutes.

19 / 01 / 2019 Economics

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Task 1: Industry Structure a) Compare the cost of a standard taxi ride versus a ride with UberX from Deakin University, Burwood campus to the Melbourne Tullamarine airport. Which would you prefer? Explain your answer. (3 Marks)  
b) Assume that the taxi industry operates in an unregulated market and is characterized by monopolistic competition. Assume also that taxis and Uber are substitutes.   
(i) Using diagrams, illustrate and discuss the long-run equilibrium of the taxi industry and individual monopolistic competitive taxi companies before and after the introduction of UberX. (Hint: use one diagram for the industry and a separate diagram for the individual taxi company.)  (ii) To what extent does the monopolistic competition model accurately reflect the taxi market in Victoria? (iii) To what extent does the oligopoly, or the monopoly, model accurately reflect the taxi market in Victoria? (7 + 4 + 4 = 15 Marks)  
  
MAE101 Individual Assignment  
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c) The Victorian taxi industry is regulated by the Taxi Services Commission (TSC). The TSC issues taxi licences, accredits drivers, and ensures that the industry complies with legislation and regulations (http://taxi.vic.gov.au/about-us/taxiservices-commission).   
(i) Use demand and supply analysis to illustrate and assess the impact of licences on the supply of taxi rides and the price of taxi rides, in the scenario where the TSC does not limit the absolute number of taxis but merely sets a licence fee for all taxis. For this question ignore all the other activities of the TSC and assume that they only regulate tax licences.  (ii) Use demand and supply analysis to illustrate and assess the impact of licences on the supply of taxi rides and the price of taxi rides, in the scenario where the TSC sets a limit on the absolute number of taxis and sets a licence fee for all taxis. For this question ignore all the other activities of the TSC and assume that they only regulate tax licences.  (iii) The TSC also sets the maximum fares that taxis can charge. Use demand and supply analysis to illustrate and assess the impact of fare regulation on the price of a taxi ride and the number of taxi rides in Victoria. For this question ignore all the other activities of the TSC and assume that they only regulate taxi fares. (iv) In contrast to taxis, UberX is currently not regulated in Victoria; UberX faces neither licence nor fare regulation. What impact does this difference in regulation have on competition in the taxi and ride-sharing industry? (v) Fare regulation is often supported by politicians because of the view that there is a corporate social responsibility to make taxi travel affordable. What other options are there to support those who would otherwise find taxi travel too costly?  (5 + 5 + 4 + 2 + 6 = 22 Marks)  
Task 2: Prices a) In this task we first explore the value of a Victorian tax license.  
(i) Construct a time series graph of the price of a Victorian license, for the years 2004 to 2014 (plot the years on the horizontal axis and the price of the licence on the vertical axis)


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